Inflation is expected to decline much faster in May 2024 as favourable base effect becomes more pronounced.

Due to this, IC Research is forecasting a 290 basis points decline in annual inflation to 22.1% in May 2024.

“While accounting for the upward pressure from sustained Cedi depreciation, higher ex-pump prices, and transport fare hikes, we forecast a 290bps decline in annual inflation to 22.1% in May 2024 due to the stronger favourable base effect. However, inflation could decline faster than our forecast if the upside risks do not feed through as feared”.

This forecasting is coming after headline inflation nosed dived by 80 basis points to 25.0% in April 2024.

“We had anticipated that a re-emergence of favourable base effect will provide the tailwind for a faster disinflation in the 2nd quarter of 2024, beginning with the April 2024 print. While this was evident in both the food and non-food inflation data, the upsurge in energy prices amidst the unrelenting cedi depreciation propelled inflation for a few heavily-weighted items of non-food inflation. In our view, the impact of FX (foreign exchange) pass-through and higher fuel prices dampened the downward pressure from the favourable base effect to weaken the pace of disinflation in April 2024.”

“As expected, food inflation came in lower at 26.8% year-on-year, indicating a 280-basis points slowdown compared to the annual rate in the prior month. This was mainly achieved on the back of a broad decline in inflation for 10 sub-classes with relatively higher weights within the food inflation category. Specifically, Fish & other seafoods (29.6% y/y | -700bps), Cereal & cereal products (15.4% y/y | - 350bps), and Vegetables & tubers (39.5% y/y | -160bps) exerted the main drag on food inflation”, it mentioned.

Non-food inflation unexpectedly quickened by 90bps to 23.5% year-on-year, albeit with less homogenous movements in its divisions.

“Notably, we observed uptick in inflation for only 4 out of the 12 reported divisions of non-food inflation with lower inflation for the remaining components. However, non-food inflation was pushed up by higher inflation for Transport (10.3% | +240bps), Housing, utilities, gas, & other fuels (28.1% | +320bps), as well as Restaurant & accommodation services (33.9% | +120bps), which together account for 43.6% of non-food inflation”, it stated.

It attributed the surge in inflation for transport, as well as utilities & fuel to the higher ex-pump prices and transport fare hikes in the past month.